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SAP Delays Profitability Target Amid Cloud Push


SAP AG (SAP), the largest maker of business-management software, pushed back its profitability target by two years as it shifts sales efforts from traditional license business to programs delivered over the Internet. The shares fell the most in six months.

The company said operating profit adjusted for some items will probably reach 35 percent of sales by 2017 rather than in 2015 as previously projected. Analysts had predicted SAP would miss the 2015 profitability target, reaching 34.1 percent by that time, according to estimates compiled by Bloomberg.

As more companies access software via the Web instead of installing programs on their own premises, Walldorf, Germany-based SAP is searching for a balance between expanding cloud-software offerings and safeguarding its mainstay license business. A stronger focus on on-demand software promises more revenue in the future but dents immediate profitability because of high fixed costs of maintaining server farms for clients.

“We have bold ambitions in the cloud,” co-Chief Executive Officer Bill McDermott said on a call with journalists. “We choose not to harvest the margin in the short run but to go for share in the cloud.”

SAP fell as much as 2.34 euros, or 3.9 percent, to 58.31 euros, the steepest decline since July 18. It traded at 58.81 euros as of 9:13 a.m. in Frankfurt.

Revenue Target

The company also set new revenue targets for 2017. It projects total revenue to reach at least 22 billion euros ($30 billion) that year and cloud revenue to be 3 billion euros to 3.5 billion euros. SAP may make acquisitions to help reach its cloud revenue targets, McDermott said.

This year, earnings excluding some items, or what the company calls non-IFRS operating profit, will probably reach 5.8 billion euros to 6 billion euros, compared with the average analyst estimate of 6.06 billion euros. Revenue from software and software-related services, adjusted for some items, will grow 6 percent to 8 percent in 2014 following four years of double-digit growth. All forecasts assume constant exchange rates, SAP said.

SAP on Jan. 10 reported a decline in license sales as a strengthening euro reduced earnings in markets around the world. SAP’s fastest-growing product, the Hana data-processing engine, fell short of the company’s annual guidance for 2013 because of currency effects.

Research firm Gartner Inc. projected this month that the global enterprise-software market will grow 6.8 percent to about $320 billion this year, after a 5.2 percent gain in 2013. That pace would keep it as the fastest-growing segment of the information-technology industry, according to Gartner.

(Source: Bloomberg)